US commercial crude oil stocks last week hit their highest level since 1931 – when the opening of giant oil fields in the United States coincided with the Great Depression to create an enormous glut and sent prices tumbling to just 13 cents per barrel.
Commercial crude stocks at refineries and tank farms across the country rose to almost 407 million barrels on Jan 23, up from 398 million the week before, according to the US Energy Information Administration (EIA).
Commercial stocks were the highest since the agency started collecting weekly data in 1982.
The parallels are not exact because production and consumption are so much higher now than in the 1930s. In 1931, stocks of 407 million barrels were equivalent to 160 days of nationwide production, while in 2015, the same stocks are just 44 days of production.
But monthly records stretching to 1920 show inventories have returned to levels briefly neared in April 1981 but otherwise not seen since the years between 1924 and 1931.
In October 1929, US commercial crude stocks peaked at a staggering 545 million barrels , following the discovery of a series of huge new oil fields in Oklahoma, Texas, the rest of the Southwest and California.
In 1926, the first gusher had been drilled in Oklahoma’s Seminole field, and by the following year the field was yielding 136 million barrels annually, 10 percent of the entire oil output of the United States.
Other massive new fields opened up in the late 1920s included Oklahoma City as well as Yates field (West Texas) and Van (East Texas), according to historian Gerald Forbes (“Flush Production, the Epic of Oil in the Gulf-Southwest” 1942).
At roughly the same time, oil was discovered at Signal Hill in California in 1923, the start of the super-giant Long Beach Oilfield within the Greater Los Angeles urban area.
The rush of new discoveries put an end to the peak oil fears which dominated the industry between 1919 and 1922 (“Petroleum Resources of the World” 1920).
But it also caused prices to plunge from $1.88 per barrel in 1926 to just $1.27 in 1929, $1.19 in 1930 and just 65 cents in 1931, according to the BP Statistical Review of World Energy.
Tumbling prices stimulated attempts at controlling over-production through voluntary agreements or state government regulation, as Robert Bradley of the Institute for Energy Research has chronicled in his history of petroleum regulation in the United States (“Oil, Gas and Government” 1996).
But nothing prepared the industry for the discovery of the super-giant East Texas field in September 1930 when Columbus Marion (Dad) Joiner drilled his third well on Daisy Bradford’s farm and it began to flow oil.
A group of oilmen in favour of production controls appealed to the governor to declare martial law. On August 17, 1931 the governor ordered the Texas National Guard and the Texas Rangers into the oilfield to shut all 1,600 wells and restore order. […]
Thus began a complicated and not completely successful effort by the authorities in Texas and other oil-producing states, and later Franklin Roosevelt’s New Deal administration, to limit oil production in order to raise prices, and ongoing challenges in the courts about whether the authorities were exceeding their powers.
The point of this historical excursion is that the chronology of oil prices has always been intimately entwined with the discovery and development of big new fields.